Judge: HealthSouth Can't Review CEO

Published 7:00 pm, Monday, January 20, 2003

A Delaware judge, ruling in a lawsuit against HealthSouth Inc., said a company committee can't be trusted to conduct a fair investigation of CEO Richard Scrushy's stock sales.

The special litigation committee, which Scrushy said conducted an impartial review of his dealings, is of "troubling composition" and has engaged in "strange conduct," wrote Leo Strine, vice chancellor of the Delaware Chancery Court.

The court can't trust the panel because its chairman, HealthSouth director Robert May, said in October that the findings of a law firm HealthSouth hired cleared Scrushy of wrongdoing.

"This extraordinary announcement came at a time when the special litigation committee's own investigation was just getting under way," Strine wrote.

Scrushy said the Birmingham-based company was still reviewing the decision.

Strine denied a request by the HealthSouth committee to delay a Delaware lawsuit against Scrushy and company directors. His ruling was released last week and reported Tuesday by The Birmingham News.

The lawsuit contends Scrushy and board members hurt the company by selling shares when they knew the stock prices would fall once they revealed profit projections were being slashed by $175 million because of a cut in government payments.

HealthSouth is the largest U.S. provider of outpatient surgery, diagnostic imaging and rehabilitation services, with about 1,800 locations in the U.S. and overseas.